Lots of glitter, not enough gold

Date: December 06 2012

Peter Ker and Jesse Riseborough

THE world's most influential mining investor has accused goldminers of having an appalling record of value destruction, urging the sector to adopt an industry-wide reporting system to standardise costs and root out the culture of over-promising.

Evy Hambro, the head of BlackRock's natural resources fund, launched the attack - which is not his first critique of the gold sector - during a conference in London on Tuesday.

His comments are particularly relevant to Australia's biggest listed goldminer, Newcrest Mining, in which BlackRock is the biggest shareholder, and which has missed guidance several times in the past 18 months.

On Tuesday Mr Hambro said investors were tired of the poor performance that had become common in the global gold sector.

''When we are misled on volume aspirations and misled in costs we can't tolerate that in terms of the way we invest our money,'' he said.

Mr Hambro said an industry reporting system had to be set up to allow investors to compare cost structures across companies.

''We want to see them negotiate with the auditors to come up with an industry standard that allows them to report to their shareholders on a level playing field,'' he said.

''What we want to see is overall change, we want to see the gold industry lead this.''

The strength of the gold price has been papering over many cracks in recent years and, Mr Hambro said, there was a risk the high prices could tempt companies to mine ore bodies that would normally be considered marginal.

''The worst thing that could possibly happen is if the gold price went up because it would take the pressure off the management to make the hard decisions,'' he said.

''What actually would be great to see is all of the hard decisions taken and then for the gold price to go up and then you get the double whammy of returns [to] the equity investor.''

One stock being watched by BlackRock as a possible investment vehicle is Melbourne-based OceanaGold, which completed a $93 million share placement to big investors this week. Completion of the raising saw the share price tumble by close to 14 per cent on Wednesday.

The news was better for Crusader Resources, the Australian company seeking to build a goldmine in Brazil. Crusader has won final approval to develop an iron ore mine in Brazil that is a key part of funding its flagship Borborema gold asset.

First production of the iron ore is expected early next year, and the revenue will reduce Crusader's need to seek sustaining capital during the feasibility studies for Borborema.

With BLOOMBERG

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